They're back... Since the late nineties, the companies that comprise this industry have struggled to find a place in the energy world and turn a profit. From the late nineties through the mid-part of this decade, fuel cells have been like a not so grand experiment. In recent months, it's become clear that they have started to carve out niche markets and focus on areas that are ripe for disruption. Two of the oldest companies in this space, Plug Power ($PLUG) and FuelCell Energy ($FCEL), have both forecasted profitability in the next 12 months.
A quick look at the largest customers of Plug Power reflects the buy-in of corporate America with concern to the sustainability and ability of fuel cells to increase productivity:
The list of Plug's customers includes the likes of Walmart, CVS, FedEx, BMW, Mercedes, Sysco and Kroger. These are some of the world's largest companies and they are currently using Plug's GenDrive solution at a limited number of sites. GenDrive is essentially a fuel cell that has been retrofitted to replace the lead acid batteries that are currently used to power forklifts. This application increases usable warehouse space by eliminating the battery room that usually consumes about 5-10% of floor space and productivity because the forklifts in each warehouse can continue to operate rather than being sidelined for a period of time to recharge. Plug's CEO Andy Marsh has suggested that they will announce expanded deals to cover more warehouse sites for at least one and maybe two of these customers by the end of the 4th quarter. He has also said that these deals will include recurring revenue, in the form of maintenance agreements with respect to the units that they deploy. He expects $PLUG to no longer be solely dependent on selling units, but that recurring revenue from maintenance agreements will become a part of their business model going forward.
Walmart is a key customer and as the largest employer in the US represents a major opportunity for Plug; their buy-in also says much about Plug's solutions with concern to commercial enterprises in the future. As Michael Bigger quotes in his blog entry:
"Walmart ($WMT) is about data and return on investment. It measures everything."
- Andy Marsh, CEO | Plug Power
FuelCell Energy has also carved out its' own niche. They are more focused on stationary power generation and according to their press release:
"We installed our first commercial fuel cell plant in 2003 and announced one billion kilowatt hours of ultra-clean power production in January 2011, which is a time span of eight years," continued Mr. Bottone. "We generated the second billion kilowatt hours in just under two years and the next billion is expected to be generated in less than one year as a 15 megawatt fuel cell park is nearing completion in Bridgeport, Connecticut and a 59 megawatt fuel cell park, the world's largest, is nearing completion in South Korea."
It appears that fuel cells are about to come back in a serious way; not as an energy solution, but as part of the energy solution that will help power our energy future. These investments represent significant risks and if they are realized, may take many years to do so.
An investment in any company can be more likely to end in loss rather than profit. This entry is intended to note a trend in the energy industry and NOT intended to be a recommendation for purchase. Any investment in any of the stocks mentioned is made at your own discretion and more importantly, your own risk. Investments should only be made with the assistance of a financial professional and following your own due diligence. We are NOT an investment advisor and DO NOT provide investment advice.